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Journal of Financial Economics Vol. 105 No. 2 2012

Do controlling shareholders' expropriation incentives imply a link between corporate governance and firm value? Theory and evidence

Kee‐Hong Bae1; Jae-Seung Baek2; Jun-Koo Kang3; Weilin Liu3,4

1 York University · 2 Hankuk University of Foreign Studies · 3 Nanyang Technological University · 4 Shanghai University of Finance and Economics

Abstract

We develop and test a model that investigates how controlling shareholders' expropriation incentives affect firm values during crisis and subsequent recovery periods. Consistent with the prediction of our model, we find that, during the 1997 Asian financial crisis, Asian firms with weaker corporate governance experience a larger drop in their share values but, during the post-crisis recovery period, such firms experience a larger rebound in their share values. We also find consistent evidence for Latin American firms during the 2001 Argentine economic crisis. Our results support the view that controlling shareholders' expropriation incentives imply a link between corporate governance and firm value.

DOI
10.1016/j.jfineco.2012.02.007
Volume
105
Issue
2
Pages
412-435
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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